Heinz tries to play catch-up at McD's

John Pooley, right, is president of the liquid products division of Golden State Foods, which supplies items, including ketchup, to McDonald's. MIKE SCHWARTZ, THE REGISTER

Twice a year Michael Hasco visits McDonald's restaurants to observe how workers squirt ketchup onto hamburgers. He thinks there might be a better way to do it.

Hasco works for H.J. Heinz Co., the world's biggest ketchup maker. Heinz produces most of the ketchup served in U.S. restaurants, including those of Burger King Corp. and Wendy's International Inc.But the Pittsburgh giant has been locked out of virtually all of McDonald's Corp.'s 13,700 U.S. restaurants since the company failed to give it enough ketchup during a tomato shortage 33 years ago. Now it's Hasco's job to win McDonald's back.

But, to do that, he'll have to knock off one of McDonald's biggest suppliers: Golden State Foods in Irvine.

The local manufacturer is a one-stop supplier for nearly 3,000 McDonald's restaurants in the United States, including all outlets in Orange County. It makes and delivers items including ketchup, beef patties and the special Big Mac sauce. About 80 percent of Golden State's $2.4 billion revenue is generated from McDonald's - and it has no plans of letting its biggest client out of its grasp.

"I don't think they stand a chance," John Pooley, Golden State's president for liquid products, said of Heinz's efforts.

Pooley declined to discuss any long-term contractual agreements it has with McDonald's. But he said he was confident that McDonald's would not stray from the ketchup formula Golden State has made for the chain since the late 1980s.

Pooley said the ketchup it delivers to McDonald's contains one-third more tomato solids than most retail brands, which results in a thicker, more natural-tasting product. In fact, McDonald's likes the product so much it hasn't tweaked the secret blend for 15 years, Pooley added.

"They have stuck to their guns, in terms of high quality ketchup," said Pooley, who lives in Orange County and works out of Golden State's City of Industry plant.

But Heinz is trying to convince McDonald's that change will be good for its bottom line.

Aggressive pursuit

Hasco, the 41-year-old vice president of global accounts for Heinz, follows McDonald's officials around the globe, trying to convince them he can shorten lines at cash registers and make it easier for customers to dip french fries in ketchup while driving.

Hasco has taken Heinz Chief Executive William R. Johnson to a McDonald's to grill hamburgers in hopes of mending the fractured relationship with the fast-food giant. This summer, Hasco plans to bring McDonald's representatives to a California farm that supplies Heinz to show off the company's tomato expertise.

His mission is part of Heinz's broad effort to refocus on its best products - especially ketchup - and escape the financial doldrums it and other packaged-food companies have been in for years.

Decades of adding new brands such as StarKist tuna and 9-Lives cat food built Heinz into a food conglomerate with more than $8 billion in annual sales. But the pantry clutter also distracted it from ketchup.

Ketchup, along with other condiments and sauces, produces 41% of Heinz's sales and a greater share of profits. Those percentages have risen in recent years as Heinz shed dozens of brands to focus on ketchup and a few other lines. Still, shares of Heinz have fallen about 18% since Johnson became CEO in 1998, and the company's earnings were 19.5% lower in Heinz's most recent fiscal year than in the year Johnson took over. That has attracted the attention of activist investor Nelson Peltz, who is waging a proxy fight to place himself and four associates on the Heinz board and push for changes he said could double the stock price.

One of Peltz's complaints: Heinz isn't doing enough to win back McDonald's U.S. restaurants, most of which serve private-label ketchup. The stakes are high. McDonald's uses 250 million pounds of ketchup a year in the U.S. - equal to about 11% of what Heinz sells worldwide. "If you're allowing the biggest ketchup user in the world to serve another brand, a brand that's not Heinz, you're in danger," Peltz said.

John Pooley, right, is president of the liquid products division of Golden State Foods, which supplies items, including ketchup, to McDonald's. MIKE SCHWARTZ, THE REGISTER
ONE-STOP SUPPLIER: Golden State Foods in Irvine manufactures and distributes a smorgasbord of items to McDonald's, including shake syrups, ketchup and other sauces. About 80 percent of Golden State's $2.4 billion revenue comes from McDonald's. PHOTO COURTESY OF GSF

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